![]() ![]() The capitalized cost is found by subtracting the trade-in value and down payment from the vehicle price.įor our example, the capitalized cost is $30,000 – $1,000 – $2,000 = $27,000. ![]() The monthly depreciation compensates the financial lender for the loss of value in the vehicle. This is essentially how much the car loses value on average per month. The formula below outlines this calculation.ĭepreciation = capitalized cost – residual value / # months The monthly depreciation is found by subtracting the residual value from the vehicle price and then dividing by the number of months for the lease term. Step Two: Calculate the Monthly Depreciation A high credit score will qualify you for a lower interest rate, which will allow you to have a lower monthly payment.Īnd if you are able to obtain financing at a lower interest rate from a different financial lender, you can use it as leverage to negotiate the same interest rate between lenders. This demonstrates the importance of maintaining a good credit score. On the other hand, the higher the interest rate, the higher the lease fee and monthly payment. Since the money factor is dependent on the annual interest rate, the lower the interest rate is, the lower the lease fee and total monthly payment will be. In our example the interest rate is 4%, but for this calculation we exclude the % so the money factor is 4 / 2400 = 0.0016667. It is calculated by dividing the interest rate by 2400 as the formula below shows. The money factor is used to calculate the lease fee. Learn more about how to calculate a loan payment. Then, we will close this section by comparing the car lease payment and the car loan payment. As we move through the steps, we’ll use the following parameters: The lease payment can be calculated using the five-step process outlined below. Mileage Allowance – The maximum number of miles that a leased car can be driven in a year, typically 12,000.The car dealer needs to be compensated for the value of their car as it depreciates, and they do this by charging a depreciation fee. Depreciation – When the value of the car goes down over time.This will be discussed further in Step One in the following section. Money Factor – The interest rate divided by 2400.Some additional lease terms that are not used as inputs in the Car Lease Calculator are shown below. Lease Term – The length of the car lease in months.Down Payment – The amount of money, if any, that is paid to the dealer at the start of the lease.You would be able to use this equity to purchase a new car. Trade-in Value – If, once the car has been returned to the dealer, the car is worth more than the residual value, there is positive equity in the car.Or, if you decide to purchase the car at the end of the lease term, this is what you would pay for it. The dealer has decided that if the car is returned in good condition, then they could sell it for this amount. Residual Value – This is what the car is projected to be worth at the end of the lease term.If you were purchasing the car in cash, this is how much you would pay. Vehicle Price – This is what the vehicle is worth.These terms are found as inputs in the calculator above. Let’s define them first to make things clearer. There are several terms we will use throughout regarding car leases. There are pros and cons for both the car lease and car loan, and the final decision will ultimately be up to the individual as to what is best for them. You own the home and could get to the point where the mortgage is paid off and there are no more mortgage payments. Renting an apartment is similar to leasing a car, in that you don’t own the apartment and will make rental payments each month you are there.īuying a home with a mortgage is similar to having a car loan. Learn how this is calculated with our APR calculator.ĭeciding whether to have a car lease or a car loan is very similar to your housing decision. The APR represents the true cost of borrowing, since it includes fees that a lender will charge you. When shopping for a car loan, make sure to compare the APRs that the lenders give you, instead of just the interest rates. You will initially make payments to the financial lender, but eventually, the loan is paid off and you no longer have a car payment. On the other hand, a car loan is when you take out a loan to purchase a car. You don’t own the car and will make payments on it throughout the term of the lease. What is an Auto Lease and How is it Different From a Loan?Ī car lease is simply renting a car from a car dealer for a certain number of years. There are several steps involved to calculate a car lease payment, but first, let’s cover what a lease is. ![]()
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